A Day Ahead View in US and Global Markets by Mike Dolan
Another stunning earnings drop from Taiwanese giant TSMC could help calm this week’s tech stock meltdown as earnings season turns to shaky megacaps with a Netflix update on Thursday – just as the European Central Bank meets.
An increasingly volatile week on Wall Street saw a wild rotation from expensive tech giants to reinvigorated small caps. As Deutsche Bank notes, the Russell 2000’s outperformance relative to the Nasdaq over the past five trading sessions has been the biggest since the old index began in 1979.
But nerves over the chip giants have been further shaken by reports of new U.S. restrictions on the sector and White House Donald Trump’s hopeful doubts about the U.S. military defense of Taiwan.
Wall Street’s semiconductor index lost more than $500 billion in value on Wednesday, in its worst session since 2020, after a report said the United States was considering tighter restrictions on exports of advanced chip technology to the China.
Artificial Intelligence heavyweight Nvidia fell nearly 7% during the session.
While Dutch chipmaking equipment supplier ASML, which fell 13% yesterday, continued to struggle in Europe, TSMC’s upgrade could help steady the ship.
US-listed shares of TSMC recovered 3% on Thursday after the company – a key supplier to Apple and Nvidia – beat profit forecasts and said its revenue in the current quarter will rise by as much as 34%.
This in turn saw a rally in related US stocks, with Nasdaq futures up 0.5% before the bell today and S&500 futures also rising. The VIX volatility indicator fell from its highest level since May.
Netflix’s streaming bellwether surpasses another earnings diary accumulated later.
Stocks around the world were similarly higher, with Japanese and South Korean high-tech benchmarks falling overnight – with the Nikkei being the big loser with a 2.2% drop, exaggerated by the rise in the yen in the week.
In the wake of a generally weaker dollar, which sent the DXY index to four-month lows before stabilizing today, dollar/yen fell to its lowest level in more than a month amid jitters around another suspicious round of intervention from the yen-buying Bank of Japan on Wednesday.
Data from the Bank of Japan suggests the bank may have purchased nearly 6 trillion yen ($38.37 billion) last week and traders said this week’s moves bear the hallmarks of further intervention – or at least of markets easily frightened by this prospect.
However, Chinese stocks remained in positive territory and the yuan froze as details of the ruling Communist Party’s “Third Plenum” began to emerge following another major miss in Chinese GDP growth in the second quarter. earlier this week.
A statement issued on Thursday after the meeting said China will strengthen the role of market mechanisms in the economy, create a fairer and more dynamic market environment and optimize the efficiency of resource allocation.
European stock markets also gained ground, with Britain’s FTSE100 outperforming the rest, helped by news of slowing UK wage growth in the three months to May and the fall of the pound from 1-year highs to less than 1. 30 dollars.
European macromarkets now await the ECB’s rate decision, where the central bank is expected to keep policy unchanged while signaling that its next move will be a cut. Markets are betting that the ECB’s second rate cut of the year will come in September and the euro has retreated slightly from Wednesday’s four-month peak.
An ECB cut in September would correspond with the point at which futures markets now firmly place the Federal Reserve’s first move, with top Fed officials signaling on Wednesday that it is “closer” to cutting rates given the improved trajectory inflation and a better balanced job market.
In an interview with the Wall Street Journal, New York Fed chief John Williams said: “We’re actually going to learn a lot between July and September.”
The comments came as US retail and industrial readings for June this week came in better than forecast, pushing the Atlanta Fed’s closely watched “GDPNow” estimate up a few more points. to 2.7%.
But helped by reasonable demand at Thursday’s 20-year Treasury bond auction, 10-year yields fell to four-month lows at 4.14%.
Key developments expected to provide further guidance to US markets later this Thursday:
* Political decision by the European Central Bank, press conference by the President of the ECB, Christine Lagarde; South African Central Bank Policy Decision* July Philadelphia Federal Reserve Manufacturing Survey, US Weekly Jobless Claims, May TIC Data on Treasury Holdings and Flows * US Corporate Earnings: Netflix, Blackstone, M&T Bank, Textron, Snap-On, Cintas, Marsh & McLennan, Abbott Laboratories, KeyCorp, DR Horton, Domino’s Pizza, PPG, Intuitive Surgical * Fed Board Governor Michelle Bowman, San Francisco Fed President Mary Daly , and Dallas Fed chief Lorie Logan speak
* Donald Trump speaks at the Republican National Convention
* European Parliament votes new President of the European Commission
* European political leaders meet at CPE summit in Oxford
* US Treasury auctions 10-year inflation-protected bonds and 4-week bonds
(Edited by Christina Fincher)
